1. How commercial lending differs from residential
- Maximum LVRs are generally lower than for home loans. Many lenders cap standard commercial loans at around 60–70% of the property value, with higher LVRs sometimes available for strong owner-occupiers.
- Loan terms and interest rates are usually set case by case, with facility terms that may be shorter than the full repayment period and reviewed periodically.
- Lenders focus on the property's income and the borrower's business strength, not just personal income.
- Valuations are ordered by the lender through its approved valuer panel, and the result can differ from the purchase price.
2. Lease and income considerations
- For investment properties, lenders review the quality of tenants, lease terms and the remaining lease term (often expressed as WALE, the weighted average lease expiry).
- An interest cover ratio (ICR) is commonly used to confirm that rental income comfortably covers interest costs.
- Vacant properties or those with short leases may attract lower LVRs or require additional security.
- Owner-occupiers are typically assessed on the trading performance of the business that will occupy the premises.
3. Costs to budget for
- A deposit plus acquisition costs such as legal fees, valuation, building and pest reports, and lender establishment fees.
- Stamp (transfer) duty, which varies between states and territories. The ACT, for example, has been progressively reducing duties on property transactions, so check current rules with the relevant revenue office.
- GST may apply to commercial property purchases unless the sale qualifies as a going concern or another exemption applies. Obtain accounting advice before signing the contract.
4. Due diligence checklist
- Confirm zoning and permitted use with the local planning authority.
- Review leases, outgoings and any strata or body corporate records.
- Commission building, and where relevant environmental, inspections.
- Consider the purchasing structure (company, trust, individual or SMSF) with your accountant, as it affects tax, lending options and asset protection.
General information only. This article does not take into account your objectives, financial situation or needs, and is not financial, tax or legal advice. Lending criteria, rates and tax rules change over time. Speak with a qualified adviser and your accountant before making a decision.
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